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China's ambitious, high-growth 5-year plan stirs a climate debate

Derek Scissors is a late-night number cruncher at a conservative policy shop that tends to be among the last places the Obama White House goes for advice.

Among the small band of U.S. analysts who occupy the nexus of the Chinese economy and global climate change policy, Scissors, an economist at the Heritage Foundation's Asian Studies Center, is a dyed-in-the-wool contrarian. Lately, as Congress thrashes about trying to understand China's nature as an economic competitor, Scissors has been pushing back against the U.S. environmental community's top China experts.

"The five-year plan is not credible," Scissors says about China's economic plan out to 2015. "Interpreting restrictions as implying a cap on consumption of 4 billion tons of coal, there's no way that's going to happen unless they just lie."

The idea that China will burn a massive amount of coal in 2015, just as it does today, goes virtually unchallenged within the wider circle of Asia experts. After all, the nation's coal consumption has more than doubled in 10 years.

The more enticing questions inside the kaleidoscope of Western perspectives on China steer toward the longer view. And economists are deliberating whether the soaring ambitions set down in China's five-year plan are at all realistic.

China's central government says the plan rebalances a production-oriented economy that charged ahead at double-digit growth rates for much of the past decade, and ushers in an era of more sustainable development and cleaner energy. Yet factory floors in Chinese cities are packed with the urban poor. Those energy-intensive cities and factories aren't getting any smaller, and the expansion of China's middle class still rests on the twin pillars of low inflation and job growth.

"This government has no credibility with rebalancing; they created the imbalance," Scissors says bluntly. "China's just going back toward the more sustainable economic trajectory that they had before this government took over."

Fidelity to coal; progress by fiat

In Washington and London, where China's rise and what it means for global resources and climate change are hotly debated, China's fidelity to coal in 10 and 20 years is a critical metric. By then, some say, coal's long-term trajectory as a fuel for powering China into the future and the implications for the global environment will be clearer.

From offices in Beijing, experts at the Environmental Defense Fund, World Resources Institute and Natural Resources Defense Council tend to see China's investments in wind and solar power, nuclear projects and hydropower as indications China is serious about using less coal over time and controlling greenhouse gas emissions and toxic air pollution.

They share Scissors' concern about the central government's capacity to balance economic growth against the environment. They agree the Chinese economy remains a runaway train.

Yet on the whole, the environmental watchdogs tend to see the glass as half-full, not half-empty, when it comes to China's commitment to deploying cleaner energy sources. It is investing twice what the United States is investing, and is meeting initial targets.

They contend China has made big strides in building up low-carbon energy capacity in the past five years. China set an ambitious goal for improving energy intensity, and nearly hit that goal in 2010. The government did this by fiat, jettisoning the tougher slog for regulators in the United States and Europe.

Still, those in the glass-half-full camp note that China shut down many of the least efficient coal-fired plants and started working in a serious way toward boosting technology that sequesters carbon emissions from next-generation coal plants.

"Yes, China's overall carbon emissions are growing and will continue to grow for some time; I don't think there's any question about that," said Barbara Finamore, NRDC's China program director. "If that's what you're looking at, you can say yes, China's doing nothing. A better way to measure this is to look at the bending of the curve."

Carbon and energy intensity targets for first time

"Is China reducing the growth of its carbon emissions? That's a different question," Finamore said, speaking last month, after returning to Washington from Beijing, to a packed room of advocates for global carbon trading. "It's very important to note that China's policies are ambitious. It takes an enormous amount of effort to train people and build the capacity at the local level to carry out these policies."

The Chinese government is at the tail end of its two-year process of drafting the 12th five-year plan for 2011 through 2015. By design, the drafting process is slow, and details are finalized and leaked to the public over a period of months. The National People's Congress approved the latest draft last month.

And in April, the government is expected to roll out about $1.5 trillion worth of investment targets for seven strategic emerging industries, adding more color and detail to a plan that global investment banks are closely watching.

The five-year plan set a carbon intensity reduction target for the first time, which follows up on promises made at U.N.-sponsored climate talks in Copenhagen, Denmark, in 2009. By the end of 2015, the central government says, carbon emissions for every unit of energy China consumes will be 17 percent below 2010 levels.

The leadership also set an energy intensity target that has the Asian powerhouse consuming 16 percent less energy for each dollar of gross domestic product than it did in 2010.

In real terms, according to the Climate Group, China's emissions will rise from 7.02 gigatons of carbon dioxide-equivalent (1 gigaton is 1 billion metric tons of carbon) to 8.17 gigatons by 2015.

If it is set against the trajectory of emissions modeled by the International Energy Agency (IEA), China avoids almost a gigaton of emissions under the 12th five-year plan. That tracks an IEA scenario for stabilizing atmospheric greenhouse gas concentrations at 450 parts per million, according to a Climate Group report in March.

Can emissions peak before 2030?

"We believe that this will lay the foundation for emissions to peak before 2030," it said.

Under IEA's "450 scenario," the United States, Europe, China and other large emerging economies would aim to limit carbon in the atmosphere and keep the global temperature rise at no more than 2 degrees Celsius over pre-industrial levels. Demand for coal, oil and gas would need to peak by 2020 under this scenario, and carbon emissions tied to energy production would need to fall about 2.5 gigatons by 2030.

Nick Robins, head of the climate group at London's HSBC Holdings, sees the combination of China's 11th five-year plan and the forthcoming plan as a triple-jump approach. "You had the first leap in the last five-year plan, restructuring some of the industries and starting to make the shift to new energy," he said. "The next phase, the hop, is more energy intensity targets and more, but not aggressively more, renewables."

The final jump, he asserts, is a strategic approach that stimulates higher-value sectors and advanced manufacturing. Today, China is the world's supplier of cheap goods. Vastly expanding the scale of emerging industries tied to a lower-carbon economy will drive down carbon intensity in China, Robins said.

One of China's seven top priorities is called "new energy." That includes wind and solar power, nuclear, hydroelectric, biofuels and "clean coal" technology, and it builds on significant investments in electricity transmission. China wants 11.4 percent of its energy to come from non-fossil-fuel energy sources by 2015 and has a goal of 15 percent by decade's end. It nearly met a 10 percent goal at the end of 2010.

To meet a projected 8 percent increase in electricity consumption, China says it will add about 235 gigawatts of hydroelectric, nuclear, wind and solar power capacity by 2015, including a big boost for grid-connected wind power, according to Deutsche Bank Climate Change Advisors.

The government is looking to nudge companies in the business of energy conservation, such as manufacturers of efficient appliances and waste-to-heat boilers.

With a foothold in companies like electric car maker BYD, in which Warren Buffett's Berkshire Hathaway bought a stake, China plans to push the full range of electric vehicle and advanced battery technology.

Outlines of a low-carbon economy, or running in place?

The government is also targeting high-end manufacturing such as advanced trains, advanced materials such as rare earth metals and LED lighting, next-generation information technology such as smart electric metering, and biotechnology that helps with crop yields as water becomes increasingly scarce.

"All of those sectors are fundamental to a low-carbon economy," Robins said.

China has been dipping its toe -- or rather, most of its foot -- in the clean energy sectors in the past few years, but the emerging industries only represent a fraction of the economy. Chinese leaders want targeted investments to bring them up to 15 percent of the economy by 2020.

"China missed the industrial revolution, it was late to the IT revolution, and they see this new clean energy revolution as one where they can be first and can do very, very well," Deborah Seligsohn, a China-based adviser for the World Resources Institute, told a House subcommittee last week.

The targets are big, and if China can pull them off, it could pay off in tons of carbon emissions ultimately stopped from escaping into the atmosphere.

But all of this is against the backdrop of China's adding 260 gigawatts' worth of coal-burning power plants by 2015. It still builds a new coal plant every two weeks. China's electricity generating capacity clocked 13 percent annual growth since 2006, and coal accounted for 72 percent of China's energy mix at the end of 2010. All told, the government says, clean energy investments will shrink coal's slice of the pie to 63 percent by 2015.

For analysts like Heritage's Scissors, and based on projections by the U.S. Energy Information Administration (EIA), targets for economic growth and coal consumption don't add up. Because of China's ever-increasing demand for energy, the EIA says, coal's share of total power generation declines from 80 percent in 2007 to 74 percent in 2035, as the country adds more nuclear power and wind generation to the grid. In essence, China is running in place on the environmental and energy side, as its cities continue growing.

Conflating jobs and clean energy goals

"It's going to take the Chinese 25 years to unwind what they did in 10," Scissors told ClimateWire. "That's what they're spending all of this money on."

Scissors often points to EIA projections, while simultaneously pointing out that the agency isn't always right. More than 700 gigawatts of coal-fired generation will hit the Chinese grid by 2035, according to EIA's best guess.

For the skeptics, China's projected 7 percent growth rate in the coming five years makes the least sense. China's economy has grown at more than 10 percent for the past five years.

China can't cap coal demand without cutting into growth, Scissors asserts, and the government of President Hu Jintao and Premier Wen Jiabao has no record of adopting long-term policies or of building institutions geared toward controlling economic expansions or balancing them with the environment.

Dominant economic and political incentives have not changed, they assert. Public expectations for more jobs, jobs, jobs and the most powerful energy-intensive industries support China's high-growth, low-inflation economic model.

"There is an element of the Chinese government that is trying to reform the economy. They just lose every time," Scissors said.

China is excellent at grabbing commercial opportunities tied to clean energy, he said, and that benefits the world. "What you have in this discussion is the conflation of economically motivated and environment-related projects in wind and solar," he argues. "That gets counted as environmental investment. It's really for Chinese jobs."

Impacts on water, climate and agriculture

By 2020, after another decade of compounding growth in China, the stakes will be considerably higher. For climate scientists, the rate at which China's power plants and industrial economy belch out carbon emissions affects the atmosphere's "tipping point" for significant climate change. Inside the oil-, gas- and coal-trading worlds, China's decisions affect commodity prices globally and add pressure to the tenuous resource base, including water and food.

A host of China experts say the outcomes are less certain than Scissors presents it. The Climate Group explains it this way in its recent report: While growth in gross domestic product has consistently outstripped projections, even if the actual rate were as high as 9.5 percent, reductions in carbon and energy intensity "would still be realistic."

HSBC's Robins acknowledges that reining in industrial growth and shifting it to emphasize less energy-intensive sectors won't be easy. "The political messaging of that shift is going to be crucial," he said. "What's interesting about the plan is there is a sense of wanting to shift the economic direction."

China successfully improved its energy intensity, said Changhua Wu, a China-based Climate Group analyst, which is a critical stride as it tries to wring inefficiencies out of its power system and heavy industry. "If you pull all the pieces together, and it's fairly well thought through, we're going to slow down this economy," she said.

Daniel Dudek, at the Environmental Defense Fund, is among the deans of private-sector efforts to design market-oriented solutions to China's air pollution. Political will exists to address carbon, he said, but China won't get the biggest bang for its buck until it lets market-based decisions scale up clean energy investments.

"China has developed not only the potential but the political will to actually hit environmental targets that are not business as usual, but require investments and require controls," he said at a conference last month in Washington.

China's targets aren't "stretch targets," Dudek said, but he sees the high-cost path of command-and-control and subsidies as not sustainable in the long run. Power prices are still heavily controlled, and penalties for companies that don't comply with pollution controls aren't strong enough to steer the market-based decisions toward national goals.

"We're not going to get a lot of lift in terms of demand-side management without more in the way of reform," Dudek said.